Hungary after the elections: where do we go from here?

26 Apr 2018

Europe

Political and Economic Risk Consulting

Stina Hartikainen

Hungary after the elections: where do we go from here?

On 8 April Prime Minister Viktor Orban and his nationalist-conservative Fidesz-KDNP alliance secured a third consecutive term in office, following months of increasingly divisive and hostile campaigning targeting migrants, the EU and civil society organisations. The enduring appeal of the governing party – which won a third consecutive two-thirds’ constitutional majority – is partly explained by the current climate: a recovering economy and an opposition unable to provide voters with a clear alternative, alongside an increasing crackdown on perceived political opponents that has raised concerns about Hungary’s democratic fundamentals.

Further polarisation ahead

Successive Saturdays since the election have seen among the largest public demonstrations in recent years in the capital Budapest, bringing together opposition parties from across the political spectrum alongside independent civil society organisations. Demanding new elections, the protests have been a rare example of anti-Fidesz unity that was visibly absent in the lead-up to the vote. The unbalanced electoral system – where Fidesz’s less-than-50% share of total votes translated into a constitutional majority – and the expanding reach of government-friendly media have created grievances among sections of the population discontent with Fidesz’s increasingly dominant and repressive governance.

Action speak louder than words

Meanwhile, Fidesz has hinted that further restrictions on perceived political opponents, including civil society and the media, are in the pipeline. Further erosion of checks on Fidesz’s power and a crackdown on independent organisations will cement the growing divisions within Hungary and the country’s strained relations with European allies.

While unlikely to derail the government formation process, legitimate concerns about respect for democratic fundamentals and the rule of law will continue to dictate Hungary’s relations with external allies, particularly the EU. The European Parliament’s Committee on Civil Liberties, Justice and Home Affairs (LIBE) on 12 April called for the launch of Article 7 proceedings against the country, which could lead to the suspension of voting rights in the European Council. Meanwhile, calls within the EU to expand capacity to intervene to protect fundamental values – including via linking it to EU cohesion funds, which Hungary is a beneficiary of – have increased over the past two years, amid the stand-off between the Commission and the Polish government. As a result, attempts by member states to further erode checks and balances will face significant external scrutiny.

Orban is likely to see Fidesz’s strong election performance as testament to the political value of his eurosceptic and anti-immigration stance, and he will fall back on this public mandate to strengthen his hand in exchanges with the EU. Orban is also likely to seek to build alliances with neighbouring countries that share similar positions on key issues, including the refugee relocation quota and broader EU reform. However, Orban’s eurosceptic corner may be getting increasingly lonely – neighbouring V4 countries Slovakia and Czechia have sought to distance themselves from the troublemakers of the EU, and critical ally Poland has in recent weeks made some tentative progress in attempts to end the conflict with the European Commission in recent weeks. Orban’s actions in the first months of his new mandate will send a signal to the EU and decide the course of Hungary-EU relations for the coming year.

Plan for the long term

From a business perspective, the election results will ensure broad political stability and policy continuity. Fidesz did not campaign on a specific policy platform but the post-election transition is unlikely to trigger significant political and policy instability for businesses, as we expect economic and social policy to remain largely intact. While some changes to the cabinet can be expected, Orban will ensure that loyal allies maintain control over key ministries.

However, another four years of Fidesz is likely to mean continued stagnation. The business environment will remain fraught by occasional hostile and unpredictable policymaking – often reflecting nationalist impulses or the influence of vested interests. High-level corruption and nepotism have increased in recent years and will continue to hamper improvements in the broader business environment. In addition, continued Fidesz dominance is likely to spell the further centralisation of political and economic power and erosion of checks and balances –ultimately calling into question the legitimacy of the current government. This is a critical challenge to long-term stability. Companies invested in Hungary should therefore start to consider what the post-Orban environment will look like, and how the transition will affect the longer-term stability of investments.